Canada: Important Changes To US Tax Filing Deadlines For Canadians

On July 31, 2015, President Obama signed into law the "Surface Transportation and Veterans Health Care Choice Improvement Act of 2015" (the Act). Although the Act was not primarily tax focused, it nevertheless contained several important changes to US tax filing deadlines, which may catch Canadians who have US tax and filing obligations off-guard.

New extended filing deadline for some (but not all) US corporate returns

Under prior law, the filing deadline for US corporations (that is, corporations subject to the US corporate income tax), was the fifteenth day of the third month following the end of the taxable year. Under the new rules, which generally apply to taxable years beginning after December 31, 2015, the filing deadline has been extended to the fifteenth day of the fourth month following the end of the taxable year.

For example, the due date for a US corporation with a calendar year-end used to be March 15 (two months and fifteen days after December 31) however, under the new law, the filing deadline for 2015 will be April 15, 2016 (three months and fifteen days after December 31). Alternatively, if the corporation had a March 14 fiscal year-end, the old filing deadline was June 30, while the new filing deadline will be July 30 (not July 31, but July 30) 2016.

So far so good... moving the filing deadline back one month shouldn't stress even the most mathematically-challenged tax professional (you know who you are). However, in a bizarre twist of congressional lawmaking (have you heard bromide about making sausage and making laws?), there is a special rule applicable to corporations with a June 30 fiscal year-end. Those corporations will retain the old filing deadline (the fifteenth day of the third month following the corporation's year-end) for a ten-year period ending June 30, 2016.

And why is this fiscal year-end treated differently from all other fiscal year-ends? The answer appears to be that having a September 15 due date for June 30 corporations means that the revenue from those tax returns is included within the government fiscal year, which ends on September 30 (and, sausage tastes better that way). Since only 10 years are scored in measuring the revenue created or lost by a tax measure, this measure avoids a transition year in which the tax returns for fiscal year-end June 30 would not be scored as producing revenue during that ten-year window.

The Act makes it up to these unfortunate corporations with a June 30 fiscal year-end by offering them the possibility of a seven-month extension of the filing deadline, whereas all other US corporations receive only a six-month extension. Therefore, the filing deadline with extension for these June 30 US corporations will be ten months and fifteen days from their year-end, rather than the nine months and fifteen days provided in the old rules.

Therefore under the new rules, the filing deadline for US corporations with a calendar year-end, with extension, will be October 15. This also happens to be the ultimate due date with extension for individual tax returns.  Under the new law, the extended deadline for non-June 30 US corporations falls on the same date as the extended deadline for filing US individual tax returns. The sobbing you may hear is coming from the US tax compliance professionals, whose October work demands will multiply in light of the confluence of corporate and individual filing deadlines.

New early filing deadline for US partnership tax returns

As is widely known, US individual tax returns are generally due on April 15 (June 15 for US persons who are outside of the US on the filing deadline). Under prior law, the US filing deadline for partnership tax returns was four months and fifteen days following the partnership's tax year. Under the Act, however, the US filing deadline for partnership tax returns has been moved up one month to three months and fifteen days following the end of the partnership's tax year. It is hoped that this new rule will reduce the tendency of partners to extend the filing deadline for their individual returns.

One may speculate whether the new March 15 filing deadline might lead to an even more pronounced tendency for partnerships to extend their partnership returns since in the past, many corporations found the March 15 deadline difficult to comply with. S corporations are corporations that have made a tax election for their shareholders to report the taxable income of the corporation on their individual tax returns. Accordingly, since these are conduit entities similar to partnerships, the due date for S corporations will remain March 15 for such corporations that have a calendar fiscal year-end and the fifteenth day of the third month following the taxable year-end. Despite the possibility of some hiccups during the transition year, one cannot fault the logic of creating due dates for partnership and S corporation returns that come one month before the due dates of the tax returns for the individual investors, who are required to report their respective shares of the taxable income of these flow-through entities.

New early filing deadline for FBARs and the ability to extend this filing deadline

As many readers will no doubt already know, US taxpayers with a financial interest or signatory authority over non-U.S. bank or financial accounts are, in most cases, required to disclose certain account information annually on the Foreign Bank (and financial) Account Report (FBAR, or in tax-geek vernacular the FinCEN 114). Currently the FBAR is due on June 30 with no ability to extend the filing deadline. However, the Act changes the filing deadline to coincide with the due date for most individual tax returns. The new rules permit for the first time an extension of months to October 15.

However, since the FBAR filing is made pursuant to the Bank Secrecy Act rather than the Internal Revenue Code, it appears likely that a separate extension form would need to be filed. As of the date of this article, existing forms have not been modified to facilitate the extension, and no new forms have been introduced.

Additional changes to filing deadlines will be announced soon

In addition to the modification to filing deadlines addressed above, the Act instructs the US Treasury to issue regulations that modify the amount of time that a particular tax return can be extended beyond its usual filing deadline. For example, the Act directs Treasury to issue regulations that allow for a six-month extension to the normal filing deadline for partnerships, where the extension is only five months under current law.

Similarly, Treasury will be issuing regulations that filing deadline for the form 1041 (US Income Tax Return for Estates and Trusts). For this return, the extension will be five and a half months rather than the current five months.

Conclusion: "Tax is easy as pie"... said nobody ever

Keeping up with substantive tax law is a challenge for taxpayers and tax professionals alike, however overlapping filing deadlines make these challenges even more confounding. The changes to filing deadlines imposed by the Act are intentionally designed to harmonize these filing deadlines (with the exception of those unfortunate US corporations with a June 30 fiscal year end), and make overall US compliance less onerous. However, the changes may catch taxpayers and tax professionals off-guard, and in light of the US's significant failure-to-file penalties it is important to be aware of these changes. Since the Act is changing the rules for due dates and extensions for a number of basic tax returns that have been in place for well over a generation, taxpayers will need to pay close attention to changes to due dates that may have come to seem natural.  One may hope the IRS will show leniency during this transition.

Moodys Gartner Tax Law is only about tax. It is not an add-on service, it is our singular focus. Our Canadian and US lawyers and Chartered Accountants work together to develop effective tax strategies that get results, for individuals and corporate clients with interests in Canada, the US or both. Our strengths lie in Canadian and US cross-border tax advisory services, estateplanning, and tax litigation/dispute resolution. We identify areas of risk and opportunity, and create plans that yield the right balance of protection, optimization and compliance for each of our clients' special circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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